"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Monday, August 30, 2010

Eureka Miner Weekly Roundup - New Features

Morning Miners!

It is 5:57 AM. Have a cup of Monday got-here-too-quick java and let's get to work. The Report is introducing a few new features this morning. As part of our Monday weekly market roundup, we've added a correlation watch for oil and copper versus gold together with the molybdenum market update and last week's chart for the Eureka Miner's Index (EMI). While we wait for the broader markets to open let's take another trip back in time to the Homestake Mine (a continuing series, Ruby Hill & Homestake Mining Memories)...

Square Set Timbering

In 1860 a clever solution to new mining problem was tried in California's famous Comstock Lode. In the deep Ophir mine traditional "post & cap" timbering could not support the enormous weight of the ore which was composed of very rich but friable quartz and clay. The Ophir mine management hired Philip Deidesheimer to develop a stronger and more easily expandable approach.

Mr. Deidesheimer came up with "square set" timbering which caught on quickly throughout the Comstock and elsewhere. Today's headline photo is a terrific example of a square set system at the 700 foot level of the Homestake Mine in Lead, South Dakota. Each set resembles the corner of a cube and is composed of three timbers: a vertical post, and a horizontal cap and girt. Additional sections and levels can easily be added starting at the cube corner of the square set.

There was one drawback to this system; great care had to be taken to ensure each square set was held together very tightly to avoid catastrophic collapse. Careless construction at Homestake's Gopher Mine caused such a disaster with a cave-in described by the manager, Harry M. Gregg:

"We come into an old gopher chamber and a large mass of ore that was loose on acc[ount] of exposure to air fell and carried all the two upper floors with it on one end and all the timbers to [the] 4th floor on the other end. I think we have control of it now and hereafter I will see that the timbers are kept closer to the work."

Perhaps not close enough. There were other square set cave-ins at Homestake; one in 1883 swallowed up an entire blacksmith shop and in 1910, an accident below broke through a street in the town of Lead.

If you want to read more about this story and other early mining technologies you may want to check out Drills and Mills, Precious Metal Mining Methods of the Frontier West by Will Meyerriecks (2003). You can purchase this wonderful book at the Eureka Sentinel Museum (see note 1).

Let's see what's new in this morning's roundups...

Weekly Molybdenum Roundup

Molybdenum prices remain in a stable range with Western moly oxide up a buck to $15.50/lb and moving closer to European moly at $16.00/lb. The LME 3-month seller contracts is now $16.67/lb ($36,750/metric ton). The Report's mid-range price target for 2010 moly prices is $15.71/lb.

Western Moly Oxide (FeMo65) $15.50/lb (the price tracked by Base Metals on the General Moly Website)

Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $16.00/lb (the price reported in the Metals Bulletin)

LME Futures Contracts

LME cash seller is at $34,050/metric ton $16.44/lb

3-Month (Buyer) $34,750/metric ton $15.76/lb
3-Month (Seller) $36,750/metric ton $16.67/lb

15-Month (Buyer) $34,750/metric ton $15.76/lb
15-Month (Seller)$36,750/metric ton $16.67/lb

Here is a chart of the LME 3-month contract (seller) from the February launch to the present:

Eureka Miner's Index (EMI)

Below is a chart of the Eureka Miner's Index (EMI) with a low interest cap of 3% on 10-year Treasurys (LIRC) and adjustments for gold and silver prices (i.e., Au:Ag ratio). The EMI gives us the market temperature for the sectors that have the greatest impact on mining in Eureka County (a larger more readable chart appears at the bottom of this blog page).

The Eureka Miner's Index(EMI) remains above-par at 135.92 just a bit south of Frday's close at 137.07 and a long way from the 6/7/10 low of 50.7. Today's number remains promising but we now need to pass resistance levels of 139.53 and then 151.54 to break the recent trend reversal to the downside. Remember an EMI greater than 100 is good times (or at least better times) for this sector.

Oil & Copper Correlations with Gold

Oil & copper correlations with gold give us insight into what may happen next for the metals & miners. As the Report showed in China to the Rescue?, one way to visualize these correlations with gold over time is to plot the "near-term" 3-month versus the "short-term" 1-month correlations (aka "rho") as shown below in these two graphs:

In this case of copper versus gold, we start out on 4/27/10 with both positively correlated (i.e. in the "+,+" quadrant). This is the day after this year's S&P 500 high and shortly after COMEX copper hit its high of $3.5840/lb (4/12/10). Unfortunately we soon descended into negative territory as the financial crisis in Europe worsened (blue line). Presently we remain in the "-/-" quadrant for both the short and near-term correlations - the magenta line and arrow show the most recent data and direction. To sustain optimism for copper prices we need a return trip to the "+,+" good lands via a trip through "+,-" country first.

Oil versus gold has a similar trajectory starting May 4th moving from the "+/+" to "-/-" quadrant. Oil, like copper, needs a breakout to the positive to end the bearish cycle of the past few months. Stay tuned.

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Outlook Dashboard

4-WD is ON - rough roads in the marketplace; The VIX or "fear index" is above 25; metals & miners are still on shaky timber but bellwether Freeport-McMoRan (FCX) has returned to the low-$70s but stillbelow its 200-day average of $75.3 (our new warning level, 8/05 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is some deflationary caution now that we are sub-3%.

The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is solidly below 3.00%

The GREEN light is turned on for Stable Markets the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserves resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The YELLOW light is turned back on for Investor Confidence as the bond markets still signal trouble ahead

The GREEN light is turned on our Fuel Gauge with oil below $80

A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.56 in early trading to $74.61 (October contract, most active); Gold is down 0.6 to $1237.3 (December contract, most active); Silver is down $0.009 to $19.065 (December contract, most active); Copper is up $0.0455 to $3.4075 (December contract, most active)

Western Molybdenum Oxide is $15.50; European Molybdenum Oxide is $16.00; LME moly 3-month seller's contract is $16.67, LME cash seller is $16.44

Stock Market Morning Update

The DOW is down 16.35 points to 10134.30; the S&P 500 is down 1.48 to 1063.11 Miners are mixed:

Barrick (ABX) $46.73 up 0.49%
Newmont (NEM) $60.08 up 0.22%
US Gold (UXG) $5.07 down 0.59%
General Moly (Eureka Moly, LLC) (GMO) $3.02 down 0.66%
Thompson Creek (TC) $8.66 up 0.35%
Freeport-McMoRan (FCX) $71.53 up 0.46% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are mixed (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $29.08 down 0.58% - global steel producer
POSCO (PKX) $103.93 up 0.72% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.02% to $1,374,311.04 (what's this?).


Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Note 1: Drills and Mills, Precious Metal Mining Methods of the Frontier West by Will Meyerriecks (2003). Eureka Opera House Director Wally Cuchine first introduced the ole Colonel to this fascinating book; you can purchase a copy at the gift shop of our Eureka Sentinel Museum. For folks new to our town, the museum is housed in the 1879 Eureka Sentinel Newspaper Building just behind the Chevron Station on South Bateman Street.

Headline photo: Homestake Mine in Lead, South Dakota. The headline and other old time photos can be seen at the Homestake Visitor Center on 160 West Main Street, Lead, South Dakota. Please pay them a visit on your next pass through.

Our thanks again to the faithful reader that made these wonderful photographs available to the Report.

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